How To Know When You're Ready To Start Investing Your Money
Investing your money is an effective way to increase your net worth at a level higher than inflation. As a general rule, inflation is about 2 to 4 percent per year in a normal economy. The S&P 500 tends to generate returns of 11 percent per year. Let's take a closer look at when you should start investing and how to develop a portfolio. How Much Money Do You Currently Have? The good news is that you can start to invest regardless of how much money you have. Some companies allow you to invest in partial shares through a dividend reinvestment plan (DRIP). Most brokers will also allow you to purchase partial shares of a company or partial shares of a mutual fund. As a general rule, you will need about $100 to start investing and should plan on contributing a least a few dollars per paycheck to help your balance grow. Can You Afford to Risk Losing Your Money? The types of investments that you make will largely depend on how much you need your money in the near future. Those who want to see quick returns may want to buy and sell real estate or invest in options. Individuals who want to see their money grow over a longer period of time may benefit from purchasing index funds or shares in blue chip companies. It is important to note that all investments incur some level of risk, and you should never invest money that you can't afford to lose.
What Is Your Current Income Level? Your current income level will also play a role in what types of investments that you make. Those who can only afford to contribute a few dollars per paycheck may benefit from putting that money into a 401k or IRA. This is because contributions to these accounts entitle you to a federal income tax deduction. Those who have thousands of dollars or more in their bank accounts may benefit from a diversified portfolio including real estate holdings and growth stocks. Feel Free to Consult With a Financial Adviser: When you are new to investing, it can be hard to make sense of your options. Talking with a financial adviser may make it possible to learn more about your risk tolerance and other investment preferences. Regular meetings with a financial professional can help you make adjustments to your portfolio over time as your needs or goals change. If you are interested in investing, you should get started as soon as possible. Thanks to the magic of compound interest, even a few dollars can turn into hundreds or thousands of dollars over time. Most brokerages allow individuals to open accounts as soon as they turn 18. Edward Schinik has been with the Investment Manager since 2009 and has been with one Affiliated Investment Manager since 2005.